Key Differences Between M&A Advisors and Business Brokers

You've spotted the right opportunity to buy someone's business, sell yours, or merge with another business for a profitable move. Before you go ahead, it's advisable to consult the brokers and advisors who are considered experts in the field to find the perfect fit for you. But what kinds of advisors exist in the market and what services do they offer? Primarily, service providers for such business level transactions can be categorized into two types: business brokers and mergers and acquisitions (M&A) advisors. Though they both operate in the same field with similar characteristics, there are important differences between the two.

Business Examples

Let’s start with two simple examples:

• A certified mechanic, who recently completed his automobile training course, is looking to purchase an established car repair workshop in his locality to start his own car repair business. He intends for possible expansion and to employ more mechanics at his garage in the future.
• An automobile firm is looking to invest strategically with an aim to build a large multi-city network of associated garages of their own brand or on a franchise model. They are targeting multiple garages up for sale, as well as those who can be persuaded to partner in.

Here is a second set of examples:

• An individual investor may be looking to purchase a shop in an under construction commercial property to reap the benefits of rental income in the future.
• An entrepreneur may be looking to invest strategically in the ongoing large scale project of a real estate firm, for the financing and purchasing of a large block of shops in an under construction commercial complex. The goal is to sell those later on or open his own business on the premises.

The first scenario in each set has specific characteristics—specific individual needs, limited business exposure, limited investment amount, localized requirements, easy to evaluate stand-alone targets, limited potential targets, and a short-term venture period. On the other hand, the second scenario in each set has different needs—a thorough and wide business exposure, large investments, and long term strategic business plans.

The first ones can easily be fulfilled by a local business broker, who can present the list of targets available immediately or in the short-term. The second ones represent more complex business requirements, and will need long-term work and yet to be identified potential targets. This type of business would require the services of an M&A advisory business firm.

To differentiate between the two service providers—business brokers and M&A advisors—let’s have a deeper look at their scope and the services they offer.

The Differences Between M&A Advisors and Business Brokers

The simplest way to look at the difference between a business broker and an M&A advisor is that business brokers operate on a small/local/regional scale and transactions usually involve single stand-alone businesses. M&A advisors work on a larger national (and even global) scale and transactions may involve complex business mergers or sales spanning multiple locations. The deal size that a business broker works with usually ranges up to $1 million to $ 2 million, whereas M&A advisors deal with multi-million dollar deals.

Client Profiles

As a result of this different scale, both service providers have different client profiles. Usually, small firms, individuals (including entrepreneurs) will fit the client profile for business brokers. M&A advisors cater to the needs of large organizations and firms, even governments and individual entrepreneurs for large scale projects, spanning multiple regions, the nation, or the world. 

Valuation Methods

Because the scope and client profile are different for business brokers vs. M&A advisors, so too are the skill sets necessary to facilitate their services. Business brokers offer services centered around establishments which are relatively easy and simple to evaluate, while M&A advisors offer services around complex business transactions which may be difficult to evaluate.

The valuation methods used by business brokers are confined to current sales, location, and profit numbers. An M&A advisor's valuation methods are elaborate enough to include strategic potential targets, analysis of required investments, intellectual asset valuation, and future potential growth. 

Scope of Business Targets

A business broker's assistance is limited in scope. A client will be presented with a list of available sellers or buyers within the regional reach of the broker. M&A advisors work strategically with the client, which can involve starting completely afresh to scout for new targets that would be a good fit for the firm.

Compensation

The manner in which both are compensated also differ to a certain degree. Business brokers work on a commission of the deal value (usually a pre-decided percentage). M&A advisors also work on percentage payouts, but additionally get rewards for their specific engagement efforts, additional services arranged for, taxation, and legal services. The difference in value is a result of the scope of long-term commitment. The role of a business broker is limited to the point of a deal getting done, whereas an M&A advisor may work in continued engagements for an extended period of time for the successful implementation of the venture.

The Bottom Line

Selling, buying, or merging a business can make or break your business venture. Selecting the right advisor for your needs requires a thorough evaluation, as it often gets confusing to select between business brokers and advisors. M&A advisors do offer more comprehensive services but come at an additional cost. Business brokers can be an economical option but are limited in scope and service. Considering the above-mentioned points, the right fit for your business should be selected.